No disadvantage to female entrepreneurs in UK bank lending, new research finds

There is no systematic gender disadvantage in UK bank lending decisions to small and medium-sized enterprises (SMEs), new research from Dr Xing Huang, Lecturer of Accounting, has found.

The study analysed over 130,000 UK SME observations from the SME Finance Monitor between 2011 and 2017 and examined whether gender was associated with the success of applications for overdrafts and term loans, while accounting for other characteristics that could influence lending decisions.

No systematic disadvantage in lending for women

The researchers found that gender did not explain differences in the likelihood of an SME securing an overdraft. For loans, female-led SMEs were around three percentage points more likely to be successful than male-led businesses after other characteristics were taken into account. This though represents only a small economic difference, the researchers say. Overall, they conclude that women entrepreneurs do not face a systematic disadvantage in formal bank credit approvals.

This remained the case even in circumstances where inequalities might be expected to become more pronounced. The study considered geography and available information: female entrepreneurs in remote areas were not less likely to secure bank finance, while female entrepreneurs running businesses with less information available to lenders also faced no additional gender-related disadvantage.

Access to finance may not be holding back female entrepreneurs

The findings are significant because access to finance has long been identified as a barrier to women's entrepreneurship. However, the researchers caution that equal approval rates do not mean wider inequalities in entrepreneurial finance have disappeared. The study does not examine factors such as the amount of finance businesses receive, interest rates or other borrowing costs, and its data predates more recent developments in fintech and alternative finance.

The authors suggest that UK anti-discrimination legislation and the increasing use of data-driven credit scoring may have contributed to more standardised lending decisions. They argue that attention should now also focus on the transparency and accountability of lending criteria and data-driven credit assessment tools to ensure apparently neutral systems remain fair and inclusive.

The research, “Gender equality and accountability in SME bank lending: evidence from the United Kingdom”, is published in the Journal of Applied Accounting Research. Dr Xing Huang worked co-authored the paper with Dr Panagiota Papadimitri (Southampton Business School) and Dr Xiaodong Wang (University of Portsmouth).